Past Issues

BuckleySandler LLP’s InfoBytes Blog monitors and reports on news, legal developments and legislative actions affecting the financial services industry. With a focus on issues ranging from fair lending to consumer financial services regulation and the CFPB, InfoBytes Blog is a comprehensive and timely source for in-house counsel and industry executives to stay abreast of developments affecting their industry.

On November 8, the Treasury Inspector General for Tax Administration (TIGTA) released a report evaluating the IRS’s strategy for addressing income produced via virtual currencies. The report which was completed on Sept. 21, but released Tuesday, observed that none of the agency’s divisions have yet developed any type of compliance initiatives or guidelines for conducting examinations or investigations specific to tax noncompliance related to virtual currencies. Accordingly, the TIGTA recommended that the IRS develop a comprehensive strategy for virtual currencies such as Bitcoin to help ensure compliance with tax law. The report also recommended that the IRS provide updated guidance to reflect the necessary documentation requirements and tax treatments necessary for the various uses of virtual currency and that the agency revise third-party reporting documents so that they identify how much virtual currency was used in taxable transactions. The IRS agreed with each of these three recommendations.

Recently, the Treasury Department announced that it is sending Congress legislation that would require companies formed within the United States, or “that [use] the mail, wire, or any facility in interstate or foreign commerce in its formation, transfer of ownership, or business activity,” to file beneficial ownership information with the Department, and would impose a $5,000 penalty for failure to comply. The proposed legislation defers to the Department of the Treasury to define beneficial ownership. The new draft legislation also proposes technical amendments to FinCEN’s Geographic Targeting Order (GTO) authority to provide FinCEN the authority to collect information on funds transfers in general, including regarding bank wire transfers, instead of transactions using “monetary instruments.”

Treasury simultaneously announced proposed regulations to require foreign-owned “disregarded entities” to obtain an employer identification number with the IRS. The proposed regulations are intended to address “a narrow class of foreign-owned U.S. entities – typically single member LLCs – that have no obligation to report information to the IRS or to get a tax identification number.” These “disregarded entities” (which include foreign-owned-single-member LLCs) can, according to Treasury, be used to shield non-U.S. assets’ or non-U.S. bank accounts’ foreign owners. If finalized, the regulations would assist the IRS in determining whether a tax liability exists, and if so, how much. Finally, the regulations would allow the IRS to share information with other tax authorities.

On August 15, the U.S. District Court for the Central District of California held that a bank responded too slowly to a government levy on a customer’s account and was therefore responsible for funds subsequently removed by the customer. The IRS notified the bank of a jeopardy levy on the account of a customer who received an improper tax refund and refused to return those funds to the government. Before the bank acted on the notice, the customer removed the funds from his account and the IRS was unable to recover them. The government then turned to the bank for relief, asserting that under the Internal Revenue Code, any person who fails or refuses to surrender any property subject to a levy is liable to the government. The court held that although the statute does not require the bank to immediately surrender the property, the bank was required, upon receiving notice, “to preserve that property or run the risk of paying the depositor’s tax bill.” The court explained that once the levy was served on the bank, the bank was in the best position to protect the property, and that even if the bank acted reasonably—i.e., without any undue delay—it could still be liable for the levied property.

On May 19, the DOJ announced that a Swiss bank pleaded guilty and entered into agreements with federal and state regulators to resolve a multi-year investigation into the bank’s alleged conspiracy to assist U.S. taxpayers in filing false income tax returns and other documents with the IRS by helping those individuals conceal undeclared foreign bank accounts. Under the plea agreement, the bank agreed to (i) disclose its cross-border activities; (ii) cooperate in treaty requests for account information; (iii) provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed; (iv) close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and (v) enhance compliance, recordkeeping, and reporting programs. The plea agreement also reflects a prior related settlement with the SEC in which the bank paid $196 million in disgorgement, interest, and penalties. Under the current agreements, the bank will pay $2.6 billion in fines and penalties, including $1.8 billion to the DOJ, $100 million to the Federal Reserve Board, and $715 million to the New York DFS. Federal authorities did not individually charge any officers, directors, or senior managers, and the agreements do not require the bank to dismiss any officers or employees, but eight bank executives have been indicted since 2011 and two of those individuals pleaded guilty. Further, federal and state regulators did not directly restrict the bank’s ability to operate in the U.S.—the New York Federal Reserve Bank allowed the bank to remain a primary dealer and the New York DFS did not revoke the bank’s state banking license.

On March 25, the IRS issued a notice in which it stated that, for federal tax purposes, bitcoins and other convertible virtual currencies are treated as property rather than currency. The IRS added that a third party that settles payments made in virtual currency on behalf of a substantial number of unrelated merchants that accept virtual currency from their customers may be a third party settlement organization (TPSO) and thus subject to IRS information reporting requirements. The IRS addressed several questions related to the use of virtual currency in the notice but acknowledged that there may be other questions regarding virtual currency not addressed that warrant consideration. The IRS is therefore accepting public comment on other types or aspects of virtual currency transactions that should be addressed by the IRS in future guidance. The notice does not specify a deadline for submitting such comments.